Mainland China is in the process of becoming an industrialized nation. Whether or not China succeeds will be a matter for time to decide. The policies of the Chinese government will have a great impact on how soon, or even if, China manages to transition into a modern economy. How open the government is to political change and to re-evaluating the Maoist doctrine it has supported since 1949 will ultimately determine the course of Chinese economic history. Mainland China's development into a modern industrialized economy depends on many factors. The policies the government sets will greatly affect, if not destroy, any chance of success. Deng Xiaping's call for an economy based on market socialism is an experiment in process.
China has spent the last several decades, until reform began in 1979, existing with an over-planned, over-centralized economy. When the Chinese Communist Party took over the government, it instituted a Soviet-style, centrally controlled plan for allocating resources. This worked well in the initial phase of economic development during the post-war economic chaos. As time passed and the economy expanded, the central system of resource allocation and price-setting did not reflect the true cost of goods and services produced. There was no method in place to rectify this divergence of actual cost and perceived cost to the consumer. Marketplace inefficiencies resulted. Compounding these inefficiencies, there were no private property rights, which would have provided incentives for individuals or other entities to save, invest, or manage their assets effectively. China's macroeconomic policy denied the existence of a market structure (Zhang, 1994, p. 276)
In the late 1970s, China's macroeconomic policy changed direction. The government acknowledged the existence of a market within the confines of a socialist economy. Deng realized that, to counter the growing unrest and food shortages within China, p...